John McCain Wants to Privatize Social Security

The Republicans have already turned to sick sexual innuendo and nonsense about their vice-presidential candidate, pigs, and lipstick in order to distract the public from the real issues in this campaign. One of the items that should be on the top of the list of real issues is Senator McCain’s plans to privatize and cut Social Security.

Senator McCain has repeatedly expressed interest in privatizing Social Security along the lines proposed by President Bush. For those who have forgotten that nightmare, President Bush’s plan would have reduced benefits by approximately 1 percent a year for many workers.

Workers who retire 10 years after the plan is put in place would have seen a 10 percent reduction in benefits compared with the currently projected levels. Workers who retire 20 years after the plan is implemented would see approximately a 20 percent cut in benefits and workers who retire 40 years later would see their benefits cut by close to 40 percent.

This schedule of cuts would apply to workers who earn $100,000 a year. Workers who earn $60,000 a year would see cuts of about half this size.

The losses to retired workers could mean big benefits for the financial industry. Under some versions of the plan, the financial industry would rake in hundreds of billions of dollars in fees and commissions over the next 40 years.

According to a recent World Bank analysis, the financial industry pocketed 15-20 percent of the money paid into the privatized Social Security system in Chile, which has often been held up as a model by privatizers in the United States. Given the losses that the millionaire Wall Street bozos have incurred with the housing crash, it is understandable that Senator McCain would want to help the very needy rich.

Privatization would be especially painful coming now, in the wake of the collapse of the housing bubble. The huge baby boom cohort that is just now reaching retirement age has seen most of their wealth wiped out by the housing crash.

A recent analysis that I did with David Rosnick, my colleague at the Center for Economic and Policy Research, showed that a typical late baby boomer household (between the ages of 45 and 54) will have less than $100,000 in wealth in 2009. This figure includes 401(k)s, IRAs, and other retirement accounts, personal savings, and home equity.

A relatively small share of these late baby boomers has traditional defined benefit pensions. In other words, these families are going to have very little to support themselves in retirement other than the Social Security that Senator McCain is so anxious to cut.

While the Bush-McCain crew has long been trying to whip up fears about Social Security’s finances, the reality is that the program is financially solid. The non-partisan Congressional Budget Office (CBO) recently updated its analysis of the program’s finances. The analysis projects that Social Security will be able to pay all scheduled benefits through the year 2049, with no changes whatsoever. Even after 2049, when the program is first projected to face a shortfall, the payable benefit is projected to be more than 30 percent higher than what the average retiree gets today, and the payable amount would continue to rise from that level every year.

The privatizers have worked hard to convince the public that Social Security is on its last leg, but this is simply a lie. We are going to face many problems that dwarf the dimensions of the projected Social Security shortfall. For example, the annual costs of the wars in Iraq and Afghanistan are approximately three times as large as the annual revenue that would be needed to eliminate the projected Social Security shortfall.

The 2049 date when Social Security is first projected to face a shortfall is more than three decades after the latest date when the next president can leave office. John McCain will be 113 when Social Security is first projected to be unable to pay full benefits. In a country where millions of families are struggling to hang onto their homes, and tens of millions are struggling to pay for health care and child care, a distant and relatively minor problem like the projected Social Security shortfall hardly warrants center stage.

The public should know that Social Security is fundamentally sound today and is projected to be sound far into the future. The line about Social Security going bankrupt is just a scare tactic pushed by the privatizers.

The presidential debate must return to Social Security and other issues that affect people’s lives. The sleaze that Senator McCain and his vice-presidential candidate throw out as a distraction should be left to the pigs.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer (www.conservativenannystate.org). He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.